4Eng Ltd v Harper & Ors [2009] EWHC 2633 (Ch)

[2009] EWHC 2633 (Ch)Case No HC08C01888
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 26/10/2009
Before
THE HONOURABLE MR JUSTICE SALES
Between
4Eng LimitedClaimant(1) Roger HarperDefendants(2) Barry Alexander SimpsonDefendant(3) Brenda Harper (in her personal capacity and as trustee of the Cardinal Trust)Defendant(4) Andrew Harper (in his personal capacity and as trustee of the Cardinal Trust)Defendant(5) Bomar Holdings Limited (A company incorporated under the laws of the States of Guernsey)Defendant(6) Joyce SimpsonDefendant(7) Adam SimpsonDefendant
Clive Freedman QC, Ian Smith (instructed by McGrigors) for ClaimantToby Watkin (instructed by Arthur Barnes) for First DefendantNigel Hood (instructed by Byrne & Partners) for Second DefendantRomie Tager QC, Stuart Hornett (instructed by Hughmans) for Third, Fourth & Fifth DefendantsDavid Burles (instructed by Messrs Bircham Dyson Bell) for Sixth DefendantHearing Hearing dates: 20/7/09 – 31/7/09
Judgment
[1]The claims before me relate to claims brought by the claimant (“4Eng”) which have been the subject of a judgment on liability (4Eng Ltd v Roger Harper and Barry Simpson, unrep., 3 May 2007, Briggs J) and another on damages (4Eng Ltd v Roger Harper and Barry Simpson [2008] EWHC 915 (Ch), David Richards J). The present claims relate to efforts by 4Eng to realise assets to meet the award of damages in its favour. The claims are brought under s. 423 of the Insolvency Act 1986 to set aside certain transactions entered into by Barry Simpson (“Mr Simpson”) transferring property owned by him to his wife. At the start of the trial before me, similar issues arose in relation to assets transferred by Roger Harper to members of his family. However, part way through the trial a settlement agreement was reached in relation to those issues and it was not necessary for me to hear evidence or rule on those issues.[2]Section 423 of the 1986 Act provides as follows:
“Transactions defrauding creditors (1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if - (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; (b) he enters into a transaction with the other in consideration of marriage [or the formation of a civil partnership]; or (c) he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself. (2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for – (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction. (3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose – (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make. (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; (b) he enters into a transaction with the other in consideration of marriage [or the formation of a civil partnership]; or (c) he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself. (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction. (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make. (4) In this section “the court” means the High Court or – (a) if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him; (b) if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.”
[3]Section 424 provides, in relevant part, as follows:
“Those who may apply for an order under s 423 (1) An application for an order under section 423 shall not be made in relation to a transaction except - … (c) in any other case, by a victim of the transaction. (2) An application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction.”
[4]Section 425 provides as follows: “Provision which may be made by order under s 423(1) Without prejudice to the generality of section 423, an order made under that section with respect to a transaction may (subject as follows) - (a) require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made; (b) require any property to be so vested if it represents, in any person’s hands, the application either of the proceeds of sale of property so transferred or of money so transferred; (c) release or discharge (in whole or in part) any security given by the debtor; (d) require any person to pay to any other person in respect of benefits received from the debtor such sums as the court may direct; (e) provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction to be under such new or revived obligations as the court thinks appropriate; (f) provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for such security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction.(2) An order under section 423 may affect the property of, or impose any obligation on, any person whether or not he is the person with whom the debtor entered into the transaction; but such an order – (a) shall not prejudice any interest in property which was acquired from a person other than the debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest deriving from such an interest, and (b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.(3) For the purposes of this section the relevant circumstances in relation to a transaction are the circumstances by virtue of which an order under section 423 may be made in respect of the transaction.(4) In this section “security” means any mortgage, charge, lien or other security.” (a) require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made; (b) require any property to be so vested if it represents, in any person’s hands, the application either of the proceeds of sale of property so transferred or of money so transferred; (c) release or discharge (in whole or in part) any security given by the debtor; (d) require any person to pay to any other person in respect of benefits received from the debtor such sums as the court may direct; (e) provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction to be under such new or revived obligations as the court thinks appropriate; (f) provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for such security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction. (a) shall not prejudice any interest in property which was acquired from a person other than the debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest deriving from such an interest, and (b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.[5]The leading authority on the meaning of “purpose” in s. 423(3) is Hashmi v Commissioners of Inland Revenue [2002] EWCA Civ 981; [2002] BPIR 974. The holding in the decision is summarised in the head note as follows:
“In order for a claimant to demonstrate that the transferor had the requisite statutory purpose of defrauding creditors as set out in s 423(3), it was not necessary to establish that such was his sole or dominant purpose and it was sufficient for the claimant to establish that such was a substantial purpose and, in this respect, two or more purposes may co-exist.”
[6]Arden LJ dealt with the issue at [23]-[25] as follows:
“[23] The question arising on this appeal is whether on the true construction of s 423 the purpose shown must be a dominant purpose. In my judgment the answer to that question must be arrived at taking into account the role, as explained above, of s 423 in insolvency legislation. Accordingly it is not necessarily helpful to apply the construction placed on similar words in different provisions and none was suggested. In my judgment there is no warrant for excluding the situation where purposes of equal potency are concerned. That was pointed out by His Honour Judge Moseley QC in the Starelm Properties case and is in my judgment correct. Thus one purpose can co-exist with another. Moreover, as Jonathan Parker J said in Re Brabon, there is no epithet in the section and thus no warrant for reading one in. Accordingly, in my judgment, the section does not require the inquiry to be made whether the purpose was a dominant purpose. It is sufficient if the statutory purpose can properly be described as a purpose and not merely as a consequence, rather than something which was indeed positively intended. Moreover, I agree with the observation of the judge that it will often be the case that the motive to defeat creditors and the motive to secure family protection will co-exist in such a way that even the transferor himself may be unable to say what was uppermost in his mind. [24] To take a homely example, suppose that I need to post a letter and also need to take the dog for a walk, and combine bother operations in the same outing. I approach this example on the footing that neither objective counts as trivial. It will be clear that I have two purposes in leaving the house. It is a meaningless inquiry to ask whether I regard one of those objects as superior to the other or regard them as of equal potency. By contrast, if I go out to post a letter and the dog gets out of the house, slips under the gate and runs after me, it could certainly not be said that I had two objects in that I was not intending to take the dog for a walk at the time. Likewise, if I go to take the dog for a walk and going past the postbox find an unposted letter in my pocket and take the opportunity of posting a letter at the same time, it will not be correct to say that I had two objects in that walk. I had only the one object, that of walking with the dog, and the posting of the letter was but a consequence of it. On the other hand, if I decide to take the dog for a walk but take the view that I will use the opportunity to post the letter at the same time, it can be said that I had two objects in that outing even if I would not have posted the letter until another day but for the need to take the dog for a walk. [25] I cite these examples to emphasise that for something to be a purpose it must be a real substantial purpose; it is not sufficient to quote something which is a by-product of the transaction under consideration, or to show that it was simply a result of it, as in the Royscot Spa case itself, or an element which made no contribution of importance to the debtor’s purpose of carrying out the transaction under consideration. I agree with the point made by Laws LJ in argument, that trivial purposes must be excluded.”
[7]Laws LJ agreed and added this at [32]-[33]:
“[32] I agree. It is clear that the statutory purpose referred to in s 423(3) of the Insolvency Act 1986 need not be the only purpose for which the impugned transaction was entered into. Moreover, there is in my judgment no warrant for a construction of the statute which would qualify the term ‘purpose’ by the adjective ‘dominant’. No such qualification is required to make sense of the Act or to give it pragmatic efficacy. On the contrary, it is easy to envisage cases where more than one purpose is at hand between whose weight or influence it is on the evidence impossible to distinguish in practical terms. [33] In such a case, in my judgment, the application of s 423(3) is by no means necessarily excluded. What in my judgment is required is that the claimant show that the donor, vendor or settlor was substantially motivated by one or other of the aims set out in ss 423(3)(a) and (b) in entering into the transaction in question. There may be cases in which, even absent the statutory purpose, the transaction would or might have been entered into anyway. That would not necessarily negate the section’s application; but the fact-finding judge on an application made to him under s 423 must be alert to see that he is satisfied that the statutory purpose has in truth substantially motivated the donor if he is to find that the section bites.”
[8]Simon Brown LJ agreed that the relevant test was not a question of whether the transferor’s sole or dominant purpose was to defraud his creditors, but whether that was a substantial purpose of his ([36]). No simple ‘but for’ test applied – it would not necessarily provide an answer to a claim to impugn a transaction under s. 423 that the transaction would have been entered into in any event for some other, legitimate reason that the transferor had for acting ([37]). He said this at [38]-[40]:
“[38] I became persuaded, however, that this is the wrong approach. Assume, say, that the debtor makes a gift partly out of a wish to avoid inheritance tax and partly to escape his creditors; and assume further that he would have made it in any event purely for inheritance tax purposes. That, to my mind, should not save the gift from being set aside. Escaping the creditors may well, after, all have been a substantial factor in the donor’s thinking. No more should a gift, in my opinion, be saved merely because the debtor would in any event have made it to benefit the donee. [39] It therefore seems to me that the test cannot be refined beyond saying that in each case the question to be asked is: can the court be satisfied that a substantial purpose of the debtor’s transaction was (putting it in shorthand) to escape his liabilities? [40] I would, however, add this. If in fact the judge were to find in any given case that the transaction is one which the debtor might well have entered into in any event, he should not then too readily infer that the debtor also had the substantial purpose of escaping his liabilities. The judge in the present case, although accepting that the debtor wanted to secure his son’s future, found that his dominant purpose was to put the property beyond the Revenue’s reach. For my part, I would question whether the evidence entitled him to go quite that far. He was, however, in my judgment certainly entitled to conclude that this was one of the debtor’s purposes, and not a negligible one. Such a conclusion was, in my judgment, sufficient to sustain his decision.”
[9]A claim under s. 423 is a claim for some appropriate form of restorative remedy, to restore property to the transferor for the benefit of creditors, who may then seek to execute against that property in respect of obligations owed by the transferor to them. In an appropriate case, an order might be made to require the transferee to pay sums or transfer property direct to the creditors, if the position in relation to execution is clear and any further costs associated with execution ought to be avoided. But often the appropriate order will be for the transferee to pay sums or transfer property back to the transferor, leaving the distribution of those sums or property as between the creditors of the transferor to be governed by the general law. This may be particularly important if the transferor is bankrupt or in liquidation (or about to become bankrupt or go into liquidation) and has a range of creditors not all of whom are before the court on the application made under s. 423. In the present case, 4Eng primarily seeks orders requiring Mrs Simpson to pay monies and restore property to Mr Simpson to assist it in then executing against those monies and property.[10]The trigger for an order to be made under s. 423 and s. 425 is that it is established that the transferor has entered into a transaction at an undervalue as defined in s. 423(1) in circumstances where the transferor entered into that transaction for the purpose of putting assets beyond the reach of a person who is making or might make a claim against him (s. 423(3)(a)) or of otherwise prejudicing the interests of such a person in relation to such claim (s. 423(3)(b)) (which I will refer to compendiously as “a relevant purpose”). Where there is the combination of a transfer of assets at an undervalue entered into by the transferor for a relevant purpose, the usual interest of a transferee in the security of his receipts is overridden in favour of those with valid claims against the transferor (“the transferor’s creditors”). The interests of the transferor’s creditors override the interests of the transferee. By virtue of the statute, this combination of factors operates so as to make the transaction reversible for the benefit of the transferor’s creditors.[11]The statute does not specify any particular mental state or action on the part of the transferee as an ingredient of the trigger conditions for liability, but that does not mean that such matters are irrelevant for defining the extent of the liability to be imposed, or the order to be made, at the next stage in the analysis, when the court considers the question of remedy under s. 423(2) and s. 425.[12]So far as I am aware and according to Counsel’s researches, there is no relevant authority governing the operation of these statutory provisions. Once the trigger conditions defined in the statute are satisfied, a creditor of the transferor will have a claim against the transferee. A wide jurisdiction is then conferred upon the court to fashion a suitable remedy. The broad objective of the remedy is set out in s. 423(2) (to “restor[e] the position to what it would have been if the transaction had not been entered into” and to “protect[] the interests of persons who are victims of the transaction”), but leaving a wide margin of judgment to the court to decide what order is appropriate (it is to “make such order as it thinks fit for” the defined objective). An extensive, non-exhaustive list of the wide range of orders which may be made in pursuit of that objective is set out in s. 425. This includes making an order to transfer any property transferred in the relevant transaction at an undervalue to any other person (such as the transferor, so as then to enable his creditors to execute a judgment against it, or directly to the transferor’s creditors) (s. 425(a)), making such an order in respect of any other property which represents in the transferee’s hands property which was transferred in the relevant transaction at an undervalue (i.e. a statutory power to trace assets in the transferee’s hands – s. 425(b)) and making an order requiring the transferee to pay to the transferor or his creditors such sums as the court may direct in respect of benefits received from the transferor (i.e. an order which does not depend upon the transferee still having in his hands the transferred property or traceable assets representing it).[13]In my judgment, the nature of any order and the extent of the relief granted by the court under s. 423(2) and s. 425 should take into account the mental state of the transferee of property under a relevant transaction (or of any other person against whom an order is sought) and the degree of their involvement in the fraudulent scheme of the debtor/transferor to put assets out of the reach of his creditors. The principles in the application of this statutory regime should reflect in this respect general principles inherent in other areas of the law, which treat the mental state and degree of involvement of a defendant in wrongdoing as relevant to the extent of recovery available against him (compare, as one example among many, Seager v Copydex [1967] 1 WLR 923, 932 – no order of an account of profits ordered against an innocent wrongdoer in respect of a breach of confidence). Although the trigger conditions for liability to make restoration under s. 423 set out the basic balance to be struck between the interests of the creditors and of a transferee as established by Parliament, the making of an order under s. 423(2) and s. 425 necessarily requires some further balancing of the interests of the transferor’s creditors and of the transferee to be determined by the court, since by the time the court has to take action events will have moved on from the transfer and the balance of the equities between creditors and transferee may well have been affected by changes in circumstances over time.[14]For example:(1) A transferee may have received a gift of money in good faith, without knowing that the transferor acted with a relevant purpose in making the gift. In such a case a broad analogy may be drawn with claims based on unjust enrichment, such as a claim for money paid on the basis of a mistake of fact, where the recipient’s interest in being able to rely on the security of his receipt is overridden by the unfairness to the transferor of being held bound by a payment made by him by reason of a mistake. In relation to such claims a defence of good faith change of position on the part of the recipient applies (Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548). In my view, if the transferee in the example has changed his position on the basis of the receipt in a way that would make it unfair to require him to repay the money (e.g., thinking it was a completely valid gift, he has spent the money on a world cruise which he would not otherwise have taken) it would not be appropriate for the court to make an order under s. 425(1)(d) requiring the transferee to pay back a sum equivalent to the amount he received;(2) Where an asset has been transferred to a transferee who has no knowledge that the transferor acted with a relevant purpose in making the transfer, and then the transferee has simply held the asset while its value has fluctuated in line with market conditions, I think that ordinarily the appropriate order under s. 423(2) and s. 425 should be an order for the transfer of the asset (either to the creditors directly or to the transferee);(3) At the other end of the spectrum, however, if the transferee has taken property knowing that it was transferred to him by the transferor for a relevant purpose, and has sought to further the fraudulent design by lying to the transferor’s creditors to shield the property against their claims, the justice of the case will be very different. Then it may well be appropriate to make orders against the transferee to protect the creditors to the fullest extent - perhaps by a combination of orders to transfer property under s. 425(1)(a) or (b) with orders for payment of money under s. 425(1)(d), if the property has gone down in value in the hands of the transferee – by analogy with the approach to damages in cases of deliberate deceit exemplified by Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254.[15]Across the range of cases, the position may become more complex if, after the transfer, the transferee has become insolvent, so that the competing interests of the transferor’s creditors and the transferee’s creditors have to be taken into account (not a complication which arises in the present case). The remedy will also, of course, have to be adjusted as appropriate if the extent of the creditors’ claims against the transferor is less than the value of the transferred property in the transferee’s hands.[16]In choosing what relief is appropriate in a given case, a great deal will depend upon the particular facts. One of the reasons the court is given such a wide jurisdiction as to remedy under this regime is to allow it flexibility in fashioning relief which is carefully tailored to the justice of the particular case. Helpful analogies may be drawn with other areas of the law to guide the court in reaching its conclusion, but given the wide range of situations which the statutory regime is intended to deal with it would be wrong to be unduly prescriptive in trying to lay down hard and fast rules for the application of these provisions.[17]The claims by 4Eng against Mr Harper and Mr Simpson arise from representations made to induce it to enter into, and the terms of, a share purchase agreement dated 29 June 2001 in relation to an engineering company called Ironfirm Ltd, which traded using the name Excel Engineering (“Excel”), under which Mr Harper and Mr Simpson sold 100% of the share capital in Excel to 4Eng. The nature of the claims was set out in detail in the judgment of Briggs J and is conveniently summarised in this way in the judgment of David Richards J at [2]-[5]:
“2. The facts relevant to the fraud practised by the defendants on the claimant may be summarised as follows. The defendants owned and managed Ironfirm Limited which traded under the name Excel Engineering (‘Excel’) and provided engineering services. Its principal customer was Mars UK Limited (‘Mars’). By a contract dated 29 June 2001, the defendants sold the entire issued share capital of Excel to the claimant 4Eng Limited (‘4Eng’). 4Eng had been established by David Shepherd and Ian Tapping as the vehicle for acquiring companies in the engineering sector. Excel was its first, and as a result of the true state of Excel, its only acquisition. 3. The contract provided for a total price of £1.2 million of which £550,000 was payable on completion and the balance by instalments over three years. The instalments were not in the event paid. Following completion, it soon became apparent to Mr Shepherd and Mr Tapping that there were problems in Excel and as a result of their painstaking investigations over a period of at least four years it was revealed that the defendants had over a long period engaged in the systematic bribery of employees of Mars which had resulted in payments by Mars to Excel on inflated or bogus invoices amounting to some £1.8 million. By the terms of the contract the defendants represented that they were not aware of any reason which would cause Mars to terminate its requirements for Excel’s products. As the defendants knew, because of the bribery this and other representations were completely untrue. Instead of buying a company worth £1.2 million, 4Eng had acquired a company which, as a result of the defendants’ corrupt system, was potentially liable to Mars for a large amount and liable also to lose is principal source of business. In short, the defendants had succeeded in defrauding first Mars and then 4Eng. 4. On 8 December 2005 each of the defendants was convicted at Reading Crown Court on charges of conspiracy to corrupt and conspiracy to defraud in relation to Excel and Mars and sentenced to six and a half years’ imprisonment. The conviction of the defendants clearly established the corruption for which they were responsible and in which, through them, Excel had participated. This in turn established that there was, as long suspected, a large potential liability of Excel to Mars. Excel was insolvent and on 9 January 2006 went into administration. On 13 July 2006 it went into creditors’ voluntary liquidation. 5. On the application for summary judgment, Briggs J held that the claim in deceit was established against both defendants, based on their knowledge of the falsity of a number of express representations contained in the share sale agreement on which 4Eng had relied in agreeing to purchase Excel. 4Eng’s alternative claims for breach of warranty were, at its request, stayed pending completion of the assessment of damages on the claim in deceit.”
[18]Evidence about the fraud carried on by Excel upon Mars was adduced in the present claim in the form of unchallenged witness statements from Excel employees describing the conduct of Mr Simpson and Mr Harper while they ran the business of Excel. Mr Shepherd and Mr Tapping also gave evidence about the steps they had taken to unravel the fraud and work out what had happened in relation to a series of “ghost invoices” created by Mr Harper and Mr Simpson to provide a cover for fraudulent payments made to Mars employees as bribes for commissioning Excel to do work for Mars.[19]In his evidence in this court, despite his conviction for conspiracy to corrupt and conspiracy to defraud, Mr Simpson maintained that he did not think that he had done anything significantly wrong in relation to the conduct of Excel’s business. According to him, he considered that the sort of practices in which he and Mr Harper engaged (providing benefits to Mars employees in return for their commissioning work from Excel) were normal in business and there was nothing untoward about them. The object of this evidence in the context of the present claims against his wife (“Mrs Simpson”) for restoration of assets under ss. 423-425 of the 1986 Act was to suggest that he did not, when transferring assets to her, act with the purpose of putting those assets beyond the reach of his creditors in the sense required by s. 423(3).[20]I find that, whilst Mr Simpson may have had a general feeling (however misguided) that paying bribes was the way of the world, he understood very well that what he and Mr Harper had done was wrong and would not bear scrutiny by others. This is borne out by the evidence of the elaborate steps that they joined together in taking to conceal the payment of bribes in Excel’s books and records, in particular by the creation of “ghost invoices” which were then buried in Excel’s accounting systems. It is also borne out by the fact that, as determined in the judgment of Briggs J, Mr Harper and Mr Simpson deliberately misrepresented Excel’s financial state to Mr Shepherd and Mr Tapping for 4Eng. At no stage did Mr Simpson attempt to explain to Mr Shepherd and Mr Tapping that Excel’s healthy turnover with Mars while it was owned by Mr Harper and Mr Tapping had been achieved by the payment of bribes to Mars employees.[21]My view is also supported by the guilty verdict against Mr Simpson in the Reading Crown Court in December 2005 on the charge of conspiracy to corrupt and conspiracy to defraud. The jury found that Mr Harper’s and Mr Simpson’s scheme was a dishonest one to corrupt Mars employees, without Mars being made aware of the truth of what was going on.[22]In the light of this, I find that Mr Simpson knew that if the scheme were ever discovered he and Mr Harper would be likely to be at risk of substantial claims being brought against them by Mars and (after the sale of Excel to 4Eng) by 4 Eng. In the present context, in determining whether a relevant purpose is made out under s. 423(3) it would not matter whether Mr Simpson acted in order to protect his assets from possible claims by Mars or from possible claims by 4Eng. It would be sufficient for 4Eng to establish that he acted for either or both purposes, since it is not a requirement of s. 423(3) that the victim claiming relief in relation to a transaction was the very creditor whose claims the transferor was seeking to defeat – it is sufficient that the transferor acted with the purpose of defrauding any person who had made or might make a claim against him (see the reference in general terms in s. 423(3) to “a person who is making, or may at some time make, a claim against [the transferor]” and Sands v Clitheroe [2006] BPIR 1000).[23]In relation to the series of transfers from Mr Simpson to Mrs Simpson reviewed below, Mr Simpson denied that he acted with any relevant purpose in making the transfer. In evaluating that evidence in light of the test set out in Hashmi, Mr Burles for Mrs Simpson and Mr Hood for Mr Simpson both emphasised that Mr Simpson entered into the share sale agreement with 4Eng to sell Excel to 4 Eng. They submitted that if he had had any concern that possible claims by Mars that he had been involved in bribing its employees might materialise or might be discovered by 4Eng (the new owner) upon examination of Excel’s books and affairs, he would not have entered into that transaction. The suggestion was that this indicated that Mr Simpson had no active concern that his and Mr Harper’s fraudulent scheme would be discovered, and hence tended to undermine 4Eng’s case that Mr Simpson was at all stages from about 1999 acting with a relevant purpose in view.[24]They also pointed to the fact that over a long period Mr and Mrs Simpson had, since they married in 1966, put the succession of houses which they owned as the family home into their joint names and had established jointly held bank accounts as their main accounts, into which Mr Simpson paid monies which he received. There is no reason to think that they intended anything other than that they should be joint owners of these assets from time to time. This pattern of joint ownership of the main family asset and principal bank accounts was established well before January 1991 (when, according to the indictment against Mr Harper and Mr Simpson, their fraudulent scheme against Mars commenced) and April 1999 (the first of the transfers of assets from Mr Simpson to his wife now sought to be impugned by 4Eng). In the light of this pattern of behaviour, Counsel submitted, it was clear that when paying monies into the usual joint accounts Mr Simpson was doing no more than following his usual and well established practice to treat his money as part of the joint family assets; it was also difficult to infer that Mr Simpson acted with a relevant purpose in mind, when he left half such property in his ownership as his own share of these assets. Had he had such a purpose, he would have taken care to transfer monies and property into his wife’s sole name in order to protect them from his creditors.[25]I think there is considerable force in both these points in relation to the earlier part of the period which I have to consider, up to about April/May 2003. They are also supported by the fact that there came a time in early May 2003 when Mr Simpson did take legal advice about how to protect the family house (“Sunset Lake”) in case claims were made against him, by transferring his half share in it to his wife, and promptly acted on that advice by effecting such transfer so that Sunset Lake was owned wholly by Mrs Simpson. This was his single most valuable asset (apart from his pension fund, which could not readily be disposed of) and was the family home, yet he had not sought such advice previously nor taken any steps to protect it against his creditors. I think this is a very powerful marker which indicates that up to that point he was not acting for a relevant purpose when he paid for investments in his wife’s name, paid money into the joint accounts and when the latest family home (Sunset Lake) was acquired and put into his and his wife’s joint names. I do not find it plausible to suppose that Mr Simpson had a relevant purpose in transferring other assets to Mrs Simpson prior to about April/May 2003, yet left his most important and personal asset exposed to execution by those with claims against him.[26]Mr Simpson also arranged for substantial funds derived from a large lump sum payment he received in about early 2003 out of his private pension fund to be transferred into his wife’s name from April/May 2003. The first payment to take out an investment fund with HSBC in Mrs Simpson’s sole name which was derived from his pension lump sum was a major transfer of funds (£150,000) in late April/May 2003 (see para. [75] below). The coincidence in timing here again supports the view that it was in April/May 2003 that Mr Simpson realised that steps should be taken to protect the family’s assets by putting a major part of them into his wife’s sole name, and began engaging in transfers of assets into her sole name for a relevant purpose. (4Eng has other claims for relief in respect of Mr Simpson’s remaining pension fund which are not before me).[27]Mr Freedman QC for 4 Eng submitted that Mr Simpson must have acted with a relevant purpose in making transfers before this time for further, additional reasons. In particular, he pointed to the facts that in correspondence from late September 2001 4Eng was asserting possible warranty claims against Mr Harper and Mr Simpson under the share purchase agreement; that on 20 February 2002 4Eng’s solicitor had a meeting with Mr Simpson and Mr Harper and made allegations that they had been involved in a fraud involving ghost companies; and that by letter dated 22 May 2002 from 4Eng’s solicitors to the solicitors acting for Mr Simpson and Mr Harper allegations were made that Mr Simpson and Mr Harper had caused payments to be made using ghost companies and false invoices bearing numbers in the 70,000 series (which allegations went to the heart of their fraud). Also, by letter dated 26 June 2002 4Eng warned Mr Harper and Mr Simpson that they proposed reporting the matter to the police. Mr Freedman submitted that Mr Simpson must have realised that the game was up and that thereafter (i.e. well before April/May 2003) he must have been acting with a relevant purpose in order to protect family assets.[28]I was not persuaded by this. After none of these events was there any pattern of Mr Simpson promptly taking steps to divest himself of his assets (in particular, his share in the family home) in favour of his wife or to shield his assets from 4Eng. Mr Harper and Mr Simpson put forward defences to 4Eng’s claims, and to some degree seem to have received favourable legal advice about them. It is by no means apparent that they had concluded that they would lose against 4Eng.[29]Also, over this period, from about October 2001, Mr and Mrs Simpson’s son, Matthew, suffered a marked deterioration in his mental condition. He suffered from a severe depressive illness with suicidal tendencies which worsened at about this time. The evidence of Mr and Mrs Simpson was that they became pre-occupied with caring for him and in trying to be with him as much as possible to prevent him from committing suicide. Mr Simpson’s attention was diverted away from his business and financial affairs to a considerable extent. Tragically, despite these efforts Matthew committed suicide on 17 April 2002. Mr and Mrs Simpson were, unsurprisingly, devastated. Again, their evidence was that Mr Simpson could give little or no attention to his financial affairs. Accordingly, they said, I should conclude that he had not acted at that time or indeed subsequently with any relevant purpose in making transfers to Mrs Simpson.[30]I accept their evidence in this regard, up to a point. It is corroborated to an extent by indications in the contemporaneous documentation that Mr Harper was experiencing difficulty in trying to get Mr Simpson to focus on the claims which 4Eng was making against them and in preparing their defence, because of the problems he had with Matthew and his grief after his suicide (as an example, I refer to a letter from Jacksons to Mr Harper dated 13 December 2002, which included this: “I know that there have been grave difficulties with Barry Simpson given his mental condition and that of his wife, but I think you need some kind of minimum authority from him so that you can conduct the case accordingly so that it does not stagnate to your disadvantage”). I accept that Mr Simpson was deeply affected by grief and a sense of remorse that he had failed to prevent Matthew’s suicide. All this, combined with the absence of any significant pattern of action being taken to shield his assets from claims at that stage, leads me to conclude that Mr Simpson was not taking steps to effect transfers to his wife with a relevant purpose until somewhat later, in early 2003.[31]There was a letter from Jacksons dated 23 August 2002 to Mr Harper alone, in which they referred to a meeting to take place and put forward as one item for the agenda “Discussion of asset protection matters”. It is likely that Mr Harper informed Mr Simpson about this letter after receiving it, since they both attended the meeting with Jacksons shortly afterwards. There does not appear to have been any earlier occasion when this topic was raised with Mr Simpson. However, the advice given at the meeting about the claims against Mr Harper and Mr Simpson was favourable, as summarised in a further letter from Jacksons (this time addressed to both Mr Harper and Mr Simpson) dated 2 September 2002, in which the partner advised (in relation to the allegations then being made about payments to ghost businesses), “I do not believe this claim will be sustainable at the end of the day”, and concluded, “… I am considerably more optimistic having discussed this matter at length with you both and feel that we should now be proceeding ahead”. The letter did not set out any advice on asset protection. Although there were some transfers of assets by Mr Simpson to Mrs Simpson shortly before 23 August 2002 (see para. [74(2)] below) they are explicable by reference to other, legitimate considerations. There was no pattern of Mr Simpson transferring other assets to Mrs Simpson immediately after 23 August 2002, after the meeting with Jacksons or after their letter of 2 September 2002. Nor was there any pattern of Mr Harper seeking to transfer his assets to family members at this stage - he approached Jacksons only in January 2003 to ask them to effect transfers for him. This again indicates that Jacksons had not advised Mr Harper and Mr Simpson to take such action in August/September 2002) and that it was not a matter seriously in consideration at that stage.[32]Mr Freedman also relied on the fact that on 4 December 2002 the police conducted raids at Sunset Lake and at the home of Mr and Mrs Harper, searching for evidence. But no charges followed at that stage or for a considerable period thereafter (Mr Harper and Mr Simpson were arrested and charged only on 12 June 2003), Mars had not asserted any claims against them, and again there is no pattern of action being taken then by Mr Simpson to shield his assets from claims in response to this. Mr Freedman also relied on the fact that letters before claim dated 9 December 2002 were sent to Mr Harper and Mr Simpson putting a figure of £5,127,606 on the principal claim against them. But the same comment applies.[33]On the evidence I find that what particularly precipitated a change in the position was an unsolicited letter dated 15 April 2003 to Mr Simpson from the solicitors then acting for him and Mr Harper (Beechcroft Wansborough), in which they said that Mr Harper had asked for advice “in connection with his personal assets and what he may do to protect those in the event of an adverse judgment against” him and Mr Simpson, and enclosed for Mr Simpson’s information their letter of the same date to Mr Harper setting out their advice about the steps which Mr Harper could seek to take to transfer his assets to family members to try to avoid having them fall into 4Eng’s hands if he lost the litigation. Beechcroft Wansborough invited Mr Simpson to call if he wished to discuss the matter further. He did not, but it is clear that at this stage he did register the point about taking steps to protect his assets. It was this correspondence to which he referred when he went to see Truman More to arrange for the transfer of his share in Sunset Lake to Mrs Simpson (see para. [54] below).[34]Accordingly, I conclude that up to about April/May 2003, Mr Simpson did not deal with his assets and effect transfers to Mrs Simpson for a relevant purpose; but that from that time on significant transfers of assets by him into Mrs Simpson’s sole name were arranged for such a purpose.[35]Mr and Mrs Simpson sought to suggest that even after that time, by reason of his grief and remorse over Matthew’s death, Mr Simpson was completely distracted from dealing with his own financial affairs, and so did not seek to act with a relevant purpose in view. I do not accept this. Although clearly very upset about Matthew’s death, Mr Simpson remained capable of taking and did take steps to obtain advice on arranging his and his wife’s property and financial affairs. I find that from about April/May 2003, when he sought legal advice about putting the family home fully into the name of Mrs Simpson, he had formed the intention that the most valuable elements of the family’s wealth should be protected as far as possible by being transferred into his wife’s sole name.

The procedural background and production of evidence

[36]At trial, 4Eng was hampered by the poor compliance of Mr and Mrs Simpson with their disclosure obligations. Late disclosure was being given by Mrs Simpson well into the trial, and Mr Freedman and his team had to work hard to assimilate the stream of new information. It was sometimes difficult to piece together what had happened in relation to particular assets.[37]In July 2005 the Serious Fraud Office (“the SFO”) obtained a freezing order in relation to Mr and Mrs Simpson’s assets, in respect of claims to be made against them under the Criminal Justice Act 1988 in the criminal proceedings to strip them of any assets which represented the proceeds of crime. Mr and Mrs Simpson had to provide the SFO with details of their assets and any payments out (e.g. for Mr Simpson’s legal costs in relation to the criminal and civil proceedings) required the approval of the SFO. In the event, no order was made under the 1988 Act in the criminal proceedings, so leaving the way clear for 4Eng to pursue its claims and to seek to execute its judgment against assets held by the Simpsons.[38]On 8 December 2005, as set out above, Mr Harper and Mr Simpson were convicted of conspiracy to corrupt and conspiracy to defraud and were sent to prison. 4Eng had been asked by the SFO not to commence its civil action until after the conclusion of the criminal proceedings. 4Eng was now able to pursue its claims.[39]On 3 October 2007 4Eng obtained a freezing order against Mr Simpson in the High Court which included obligations to provide information about his assets to 4Eng. A further freezing order containing similar obligations was made against Mr Simpson on 3 June 2008.[40]On 8 May 2008 David Richards J made an order consequent upon his judgment on damages in relation to the deceit claims against them requiring Mr Harper and Mr Simpson to pay 4Eng £8,148,002.58.[41]On 10 July 2008 4Eng issued its present claim based on s. 423 of the 1986 Act against, among others, Mrs Simpson.[42]On 10 July 2008 David Richards J made an extended freezing order in favour of 4Eng including against Mrs Simpson in relation to certain assets set out in a schedule to the order. The extended order imposed disclosure obligations on both Mr and Mrs Simpson. The scheduled assets held by Mrs Simpson included a half share in the family home, Sunset Lake (i.e. Mr Simpson’s half share in the property which had been transferred to Mrs Simpson in May 2003), various bank accounts and financial investment products held by her, a Jeep Cherokee car, all assets held by her for the benefit of Mr Simpson and all assets of £1,000 or more in value transferred to her by Mr Simpson since January 1991 (the date given for the start of Mr Simpson’s and Mr Harper’s fraud in the indictment against them) and any assets and income derived from such assets. The order thus froze assets in Mrs Simpson’s hands which might be the subject of an application for relief under s. 423.

(g) ):

“(g) The capacity in which the assets are held and if held on behalf of another person (directly or indirectly, in whole or in part), the identity of that other person; …”
[43]At this stage Mr Simpson was serving his prison sentence imposed in respect of his conviction in December 2005. He made a very short witness statement dated 16 August 2008 in response to the order giving in a schedule exhibited to it details of his own assets, Mrs Simpson’s assets and joint assets. The exhibited schedule of assets was as follows: JOINT ASSETS WITH JOYCE SIMPSON Assets BARRY SIMPSON’S ASSETS Assets JOYCE SIMPSON’S ASSETS

Assets

[44]Mrs Simpson also swore a short affidavit dated 16 August 2008 in response to the order. She exhibited to the affidavit the same schedule of assets, which had been prepared in relation to the criminal proceedings against Mr Simpson. Mrs Simpson said that the schedule set out her asset position and continued, “So far as I am aware I do not own any other property either legally or beneficially”. This was obviously her response to paragraph 7(g) in the order of 10 July 2008; it shows that she had the idea of legal and beneficial ownership, and the distinction between them, in her mind when she swore her affidavit. The schedule listed Sunset Lake as her asset. Mrs Simpson did not reveal that she had obtained on order from the Bournemouth District Registry of the High Court on 13 December 2007 declaring that she owned 50% of the beneficial interest in Sunset Lake and that her husband owned the other 50% (“the Bournemouth order” - see para. [62] below). This only emerged from a witness statement of Mrs Simpson dated 21 July 2009 and attached documentation, provided after the trial had started.[45]In her oral evidence, Mrs Simpson sought to explain her omission to explain the ownership of Sunset Lake as declared by the court by saying that the schedule was just dealing with who owned the various assets “on paper”. I do not accept that explanation. The term of the order of 10 July 2008 set out above was very clear, and Mrs Simpson’s answer was very clear. It is also clear that she had the distinction between legal and beneficial ownership well in mind when she swore her affidavit. It is not possible that on 16 August 2008 she could have forgotten the Bournemouth order of 13 December 2007 obtained on her own application, and she did not claim that she had. If Mrs Simpson had revealed in August 2008 that half the beneficial interest in Sunset Lake was owned by Mr Simpson, 4Eng would immediately have taken steps to obtain a charging order against his share of the property and would have sought a sale of it in execution of the award of damages made against Mr Simpson in 4Eng’s favour. However, Mrs Simpson succeeded in averting that outcome by maintaining in her affidavit of 16 August 2008 (in conjunction with Mr Simpson in his witness statement of the same date) that she was the full owner of Sunset Lake.[46]I am driven to the conclusion that Mrs Simpson lied in her affidavit in this regard. I cannot infer from the fact that she disclosed very late in the day that the Bournemouth order had been made that she was honest when she made her affidavit in August 2008. In my view it is more likely that, as the trial date when she would have to go into the witness box loomed nearer and lawyers for 4Eng were making energetic enquiries of their own about the various assets in dispute, Mrs Simpson decided that the safer course would be to reveal, at the last possible minute, the truth about the Bournemouth order.[47]Mr Simpson had been given notice of the application for the order and accepted that he knew of the order which was made. I find that he too must have appreciated that what he said in his witness statement about Sunset Lake being an asset of his wife rather than a joint asset was untrue.[48]By a further order dated 13 October 2008 the freezing order in 4Eng’s favour was extended to include all Mrs Simpson’s interest in Sunset Lake. 4Eng complained that Mr and Mrs Simpson had not provided adequate disclosure of assets, so they were each also ordered to provide all the disclosure required of them under the order of 10 July 2008 to the best of their ability and after making reasonable inquiries.[49]By an order of 10 December 2008 revised directions were given for the preparation of the case for trial. Mr and Mrs Simpson were ordered to serve their evidence in answer to the claim by 30 January 2009, and standard disclosure by each party was to follow thereafter.[50]Mr and Mrs Simpson still had not fully complied with their disclosure obligations under the order of 10 July 2008, so 4Eng applied for and obtained a further order dated 10 December 2008 requiring them to do so by 30 January 2009 to the best of their ability and after making all reasonable inquiries, failing which they would be debarred from defending the claim brought under s. 423.[51]Mr Simpson made a witness statement and Mrs Simpson swore an affidavit dated 30 January 2009 responding to the disclosure orders made against them and to stand as their evidence for trial in accordance with the directions made on 10 December 2008. Mrs Simpson referred to difficulties in providing full information about their assets because relevant paperwork had been seized by the police previously. Mr Simpson was still in prison (he was released in March 2009).[52]In her affidavit, Mrs Simpson now said she held Sunset Lake and the other assets previously listed as “Joyce Simpson’s assets” (i.e. assets in her sole name) on trust for Mr Simpson and herself in equal proportions, apart from Sunset Lake which she said she held on trust for herself and Mr Simpson in relation to which she said, “I understand that the beneficial holding may be in the region of 67% for myself and 33% for Barry Simpson”, and gave detailed reasons to support that view. She again did not mention the Bournemouth order which declared that each of them had a 50% interest. In her oral evidence, Mrs Simpson said that she had always thought that she owned only 50% of Sunset Lake. I therefore find that her detailed suggestion in her affidavit of 30 January 2009 that she owned 67% was a further dishonest effort by her to stave off enforcement action and limit the ability of 4Eng to seek to execute the judgment in its favour against the family home (see para. [64] below).[53]Her new suggestion that she held the other assets listed in her sole name on trust for herself and Mr Simpson was also incorrect and confusing, since in fact they had been transferred or set up in her sole name for reasons which made it clear that the true intention was that she should be sole legal and beneficial owner of them. However, I think that this was not a matter of dishonesty, but of Mrs Simpson’s failure to appreciate where legal and beneficial title in relation to those assets truly lay. Her evidence in that regard is properly to be understood as conveying her broad understanding that these were family assets in a very general sense, rather than as establishing that she did in fact hold them on trust for herself and Mr Simpson (and Mr Freedman did not contend that they were so held). The assets of Mr and Mrs Simpson Sunset Lake

The assets of Mr and Mrs Simpson

[54]Mr Simpson transferred his half share beneficial interest in Sunset Lake to Mrs Simpson in May 2003. He did this following legal advice. The legal advice Mr Simpson received came in two ways. First, there was the letter of 15 April 2003 from Beechcroft Wansborough to Harper advising him of steps to take to protect his assets, which was copied to Mr Simpson (para. [33] above). Secondly, Mr Simpson arranged an appointment with local solicitors, Truman More, on 2 May 2003 to obtain their assistance to protect the family home from 4Eng. Their file note suggests that he attended to obtain that advice with Mrs Simpson, and she accepted that she probably attended the appointment with him and heard and understood the discussion. Truman More’s attendance note was disclosed at trial. It said:
“Mr. Simpson confirms that he wishes, on the advice of his current Solicitor, to transfer the matrimonial home and land therewith into the sole name of his Wife. I explained that he was doing this by way of gift, and drew to his attention the provisions of the Insolvency Act 1986 as amended. Drawing his attention to the fact that if the step was being taken as a means of avoiding his creditors, then there could be a claw-back. Additionally, if the property were sold at any time during the next 5 years, there is a high likelihood that the buyer would require an indemnity policy to be set up at his cost. All of this he understands, and he further understands that in the event of his Wife and he splitting up, she would have the premises in her sole name. He realises the risks that he is taking, but confirms that he is prepared to run them. I said we would contact him as soon as the Transfer was ready for signing, and they both will come in to get it done as quickly as possible.”
[55]Mr Simpson executed the relevant transfer of his interest shortly thereafter, so that Sunset Lake passed from joint ownership by Mr and Mrs Simpson into the sole legal and beneficial ownership of Mrs Simpson. I find that Mr Simpson arranged to make this transfer because of his fear that the family home might be at risk from the claims made by 4Eng against him, and in an effort to shield it from those claims. In that regard it is significant that the attendance note records that Mr Simpson made reference to the advice received from Beechcroft Wansborough in April 2003, which was directed precisely to the question of protection of assets from his creditors. Accordingly, I find that the transfer of his half share in Sunset Lake was for a relevant purpose at the time it was made.[56]According to Mr Simpson, the value of Sunset Lake at the time of the transfer was about £1,450,000 (of which he beneficially owned half). Since then it is likely that Sunset Lake rose in value with the general increase in property values, but then fell in value with the market from about August 2007 onwards.[57]Mr Burles submitted that the transfer of Mr Simpson’s interest in Sunset Lake to his wife cannot be impugned under s. 423 because the requirements of s. 423(1) were not satisfied (indeed, in his oral submissions, he extended this argument to cover all transfers made by Mr Simpson to Mrs Simpson). His argument went as follows. These days, if a married couple divorce, a wife who has been a housewife or worked in her husband’s business while he has built up his wealth over time can generally expect to receive about half the family’s wealth (including as stored in the husband’s private pension fund) by order of the court in divorce proceedings under the Matrimonial Causes Act 1973 (see e.g. White v White [2001] 1 AC 596). In his submission, even though Mr and Mrs Simpson were not divorced and did not contemplate getting divorced, nonetheless Mrs Simpson should be treated by about 1999 onwards as having a form of right (albeit inchoate) to half the family assets. Therefore, he said, any receipt of assets by her from Mr Simpson (including his half share in Sunset Lake), up to 50% of their combined wealth, should be treated as paid for full valuable consideration, since it would operate to reduce Mr Simpson’s liability to make payment to her if they later got divorced. He said that this covered the transfer of Mr Simpson’s share in Sunset Lake (and, indeed, all other transfers made by Mr Simpson to his wife), in light of his ownership of a valuable pension fund. Therefore, on Mr Burles’ submission, such transfers could not be impugned under s. 423 because the requirements of s. 423(1) were not satisfied. The transfers ought not to be regarded as gifts; they should not be characterised as transfers at an undervalue; and they were transfers not in contemplation of marriage, but transfers which related to the equities between Mr and Mrs Simpson arising out of their long marriage.[58]In support of his submission, Mr Burles relied in particular on Hill v Haines [2007] EWCA Civ 1284; [2008] 1 FLR 1192. In that case, a husband and wife purchased a property as joint tenants. After the breakdown of the marriage, the wife issued divorce and ancillary relief proceedings. In those proceedings, with warning signs that the husband was likely to become bankrupt, the court made a property adjustment order requiring the husband to transfer his 50% interest in the property to his wife. A bankruptcy order was made in respect of the husband on his own application without him complying with the transfer order. The judge who had made that order then executed the property transfer. The property was sold, and the husband’s trustee in bankruptcy sought to secure the value of the husband’s half share for the benefit of his creditors by having the property transfer set aside under s. 339 of the 1986 Act as a transaction at an undervalue. The definition of a transaction at an undervalue in s. 339(3) is in materially identical terms to the definition of that concept in s. 423(1), set out above. The trustee in bankruptcy was successful at first instance, but the Court of Appeal allowed an appeal by the wife. The Court of Appeal held that the relevant transaction effecting the transfer was the order of the court exercising the matrimonial jurisdiction, and that relevant “consideration” was given for the transfer in the form of the compromise or release of the pre-existing statutory right of a spouse to seek an order under the 1973 Act. The head note in [2008] 1 FLR 1193 summarises the court’s ruling in this way:
“In the ordinary case a transferee under a transfer made pursuant to a property adjustment order was to be regarded as having given consideration in money or money’s worth, unless the case was exceptional and it could be demonstrated that the property transfer order had been obtained by fraud or some broadly similar exceptional circumstance. The order of the court quantified the value of the applicant spouse’s statutory right to apply for financial provision by reference to the value of the money or property thereby to be paid or transferred by the respondent spouse to the applicant spouse. Whether the order followed contested proceedings or was by way of compromise, in the absence of the usual vitiating factors of fraud, mistake or misrepresentation, the value of the statutory right was balanced by the monetary value of the payment or transfer. Parliament could not have intended that a court order of this type, one of the commonest orders made by courts exercising their matrimonial jurisdiction, should be capable of automatic nullification on the suit of a bankrupt spouse’s trustee in bankruptcy, a bankruptcy order having subsequently been made on the spouse’s own petition. Plainly if the ancillary relief order were the product of collusion between the spouses, designed to affect the creditors adversely, or there were some other vitiating factor, the trustee would be entitled to apply to set the order aside.”
[59]I do not accept Mr Burles’ submission. Mr Freedman gave a simple answer to it, that the transfer of Mr Simpson’s interest in Sunset Lake (and each of the other transfers in issue) had not been carried out as part of an agreed exchange, or for any consideration at all (cf Haines at [79] per Rix LJ: “The doctrine [of consideration] is used in essence to distinguish the obligatory promise from the merely voluntary…”). The transfers in this case were simple gifts, and so in each case the requirement in s. 423(1) was satisfied. I think that is right.[60]In my view, Mr Burles sought to extend the effect of Haines well beyond what it decided and the reasoning in the judgments. The transaction in that case was the satisfaction of a claim for ancillary relief (which had been formulated and commenced by the wife against the husband in the context of their divorce) which was achieved by the order of the court. The same principles would apply to a compromise agreement between husband and wife in respect of claims for ancillary relief, which is then carried into effect by an order of the court. None of those elements are present in the case before me. In Haines, the court order quantified the claim and gave effect to the transfer, so that the amount of the claim was quantified and its value exactly matched its release under the order (see [35]). In the present case, Mrs Simpson was not proposing to divorce Mr Simpson (indeed, it is unlikely she will ever do so) and so had no claim (and may never have a claim) to bring against him, let alone one which was fully quantified and endorsed by the court. There was no agreement that the transfers from Mr Simpson should be in return for anything at all. They were simple gifts and Haines has no application.[61]Mrs Simpson’s evidence was that Mr Simpson told her that the transfer of Sunset Lake into her sole name was done on legal advice, and she just accepted that. She was still struggling to come to terms with Matthew’s suicide and did not question him about it; she thought that Mr Simpson was innocent of the charges against him and did not recognise that 4Eng might in future attempt to claim Mr Simpson’s assets; and she simply agreed to the transfer. I accept this evidence. It is supported to an extent by the Truman More attendance note quoted above, which records that they advised that if the transfer was intended as a means of avoiding Mr Simpson’s creditors, then it could be reversed. I think that would have tended to suggest to Mrs Simpson (who had not seen the correspondence of 15 April 2003 from Beechcroft Wansborough) that this was not apparently Mr Simpson’s purpose in effecting the transfer.[62]However, during the criminal proceedings in 2007 Mr and Mrs Simpson were given legal advice regarding Mrs Simpson’s interest in Sunset Lake. The prosecution was to make an application for forfeiture of assets which represented the proceeds of crime, and there was a concern that the family home would be included within that application. To meet that threat, and try to protect Sunset Lake to some extent, Mrs Simpson decided to seek a court order which would again declare a half/half division in the beneficial ownership of Sunset Lake between her and her husband, on the basis that her half share was the product of her own contributions and entitlements and did not represent the proceeds of any crime. Accordingly, Mrs Simpson contacted a local firm of solicitors, Meesons, and instructed them to make an application for an order under s. 17 of the Married Women’s Property Act 1882. They issued an originating summons in the Bournemouth District Registry of the High Court seeking such an order. Mr Simpson was given notice of the proceedings. The Bournemouth order was made on 13 December 2007, declaring that the beneficial interest in Sunset Lake was owned as to 50% by Mrs Simpson and as to 50% by Mr Simpson.[63]That order is a binding court order declaring the respective interests of Mr and Mrs Simpson in the house, and I see no reason to go behind it. By seeking and obtaining the order Mrs Simpson constituted herself trustee of Sunset Lake for herself and her husband in equal shares.[64]In her affidavit of 30 January 2009, in her pleaded case in these proceedings and again in her witness statement of 21 July 2009, Mrs Simpson sought to suggest that in fact she was entitled to a higher share (67%) of the beneficial interest in Sunset Lake than the 50% declared in the Bournemouth order. That case, however, was contradicted by Mrs Simpson’s oral evidence under cross-examination that she had always considered that she and her husband owned half shares in Sunset Lake. From late 2007 I do not think that Mrs Simpson could ever have had an honest belief that she was entitled to more than a half share in Sunset Lake, as set out in her application to court and in the Bournemouth order (see para. [62] above).[65]By the time the Bournemouth order was made, the proceedings brought by 4Eng against her husband had been on foot for some time. At the latest by the time Mrs Simpson had notice of the order of 10 July 2008 of David Richards J, freezing assets in her hands and seeking details of her and her husband’s assets, she must have realised that the true picture of the beneficial ownership of Sunset Lake was an important matter. She must have had the declaration of the court set out in the Bournemouth order well in mind at this stage – she made no suggestion that she had forgotten about it, and it is not credible to think that she had. Yet she swore her affidavit of 16 August 2008 to the effect that Sunset Lake was solely owned by her, knowing that was untrue; and Mr Simpson also told the same lie (see paras. [43] – [47] above).[66]In my view, Mr and Mrs Simpson lied about the beneficial ownership of Sunset Lake at this stage because they hoped in this way to protect the family home from simple and expeditious steps being taken by 4Eng to execute against Mr Simpson’s half-share in the beneficial interest to satisfy part of the damages judgment it had obtained in its favour in May 2008. They were successful in that endeavour. On the basis of the false picture presented by them in August 2008 (to the effect that Mrs Simpson was the sole owner of Sunset Lake), 4Eng was diverted from seeking to take immediate steps to execute against Mr Simpson’s interest in the property and was driven to seek to impugn the earlier transfer of his interest in May 2003 by means of this s. 423 application, which required there to be a trial and involved further delay.[67]As matters now stand, it has emerged that there is in place the Bournemouth order declaring that Mr Simpson owns 50% of Sunset Lake. 4Eng does not require an order under s. 423 to be able to execute against his beneficial half share, and an order against Mrs Simpson to transfer any beneficial interest in Sunset Lake is both unnecessary and inappropriate (since in my view she has always been entitled to half the beneficial interest in Sunset Lake, and has not derived that interest from any relevant transfer from Mr Simpson made with a relevant purpose).[68]Nonetheless, Mr Freedman seeks an order under s. 423 and s. 425 for the transfer by Mrs Simpson of the legal title to Sunset Lake into the joint names of her and her husband as tenants in common. He tells me that such a transfer may assist 4Eng in the process of executing its judgment against Mr Simpson’s half share in the house. Such an order would restore the legal position fully to what it was before the impugned transaction in May 2003 and in my judgment it is appropriate that it should be made.[69]In addition, Mr Freedman seeks an order against Mrs Simpson under s. 423(3) and s. 425(1)(d) that she make a money payment to Mr Simpson, and that there be an order for an inquiry into the amount that she should pay. He seeks this on the basis that, by her misrepresentation in August 2008 to the effect that she was the sole owner of Sunset Lake, she prevented 4Eng from executing against Mr Simpson’s share in the house in about August 2008 at a time before the value of the house dropped further in line with the market. Accordingly, by that misrepresentation (in which Mr Simpson joined), Mrs Simpson caused damage to 4Eng’s interests which she ought now to make good.[70]This is a rather unusual application for relief under s. 423 and s. 425, but I think that such an order should be made in the circumstances of this case. In substance, 4Eng would have a good claim for the tort of deceit against Mrs Simpson in respect of the lie about the ownership of Sunset Lake in her affidavit of 16 August 2008, and that would give rise to a damages claim against her for sums equivalent to those now sought by means of an order under s. 425(1)(d). I can see no point in insisting upon 4Eng repleading its case against her in that way. The loss they claim is sufficiently linked to the original transfer by Mr Simpson of his half-share in Sunset Lake to Mrs Simpson in May 2003 (which was made by him for a relevant purpose) as to warrant an order being made under s. 423(3) and s. 425(1)(d) to restore the position to what it would have been had no transfer been made and 4Eng been in a position to seek to execute its judgment against Mr Simpson’s half-share in Sunset Lake in mid-August 2008. By the lie in her affidavit of 16 August 2008 Mrs Simpson deliberately sought to give the impression that the transfer in May 2003 (which 4Eng impugns in these proceedings under s. 423) was valid and effective - and continued to be effective - to constitute her as the sole owner of Sunset Lake. In my view, the order now sought by 4Eng under s. 423(3) and s. 425(1)(d) is necessary to reverse the effect of the original transfer by Mr Simpson and the effect of Mrs Simpson’s attempt in August 2008 to uphold the effect of that transfer as between her and 4Eng (I should add that although Mr Freedman has put this as a claim for a payment to be made to Mr Simpson, it provisionally seems to me that it would be more natural for the relevant order in respect of this under s. 425(1)(d) to be for the payment by Mrs Simpson direct to 4Eng, since the claim is critically based upon a lie told directly to 4Eng and relied upon by it, rather than the general class of creditors of Mr Simpson; the parties should consider what the appropriate form of order should be).[71]Mr Burles submitted that such an order should not be made because it would involve disproportionate costs going forward to have a trial to work out the value of what 4Eng has lost as a result of Mrs Simpson’s lie in August 2008. He also said that the lie had been withdrawn by her witness statement of 30 January 2009, but 4Eng failed to take enforcement action at that stage, so there was a causation difficulty in relation to 4Eng’s claim.[72]I do not accept either of these points. Sunset Lake is a house of substantial value and it is entirely possible that with the fall in the housing market since mid-2008 the loss to 4Eng could be significant. It ought to be reasonably straightforward to obtain the views of local estate agents to establish the extent of the fall in its value and for the parties then to seek to agree the appropriate final order so as to avoid the full cost of a further hearing. If agreement cannot be reached, costs will have to be incurred and borne by the losing party in relation to that issue in the usual way, but there is nothing untoward or disproportionate about that.[73]As to the point on causation, in her witness statement of 30 January 2009 Mrs Simpson did not correct her previous lie by telling the whole truth. She still withheld all information about the Bournemouth order and tried (knowing it to be untrue) to suggest that her beneficial share in Sunset Lake was greater than 50%. It appeared that resolution of that issue would require a trial, so it is not surprising that 4Eng did not at that stage divert attention and resources away from preparing for the trial of all the issues in its s. 423 claim, but left matters to be sorted out in the trial of that claim which was already due to take place later in the year. Thus Mrs Simpson’s lie in August 2008 continued to have an effect upon 4Eng, which was itself carried forward by further lies in her witness statement of 30 January 2009.

Other assets

[74]I refer to the other relevant transfers of property to which Mr Simpson and Mrs Simpson made reference in, respectively, the witness statement and affidavit of 30 January 2009 and as emerged from disclosure in the course of the trial:(1) Mr Simpson transferred a sum to set up the Bradford & Bingley account no. 032CT304901E in Mrs Simpson’s name in about April 1999 because he had been advised to do so by a financial adviser to reduce the tax paid in respect of it. He was a higher rate taxpayer, she was not. I accept this evidence. It is supported by a document from the period before April/May 2003 (a letter from an investment adviser at Bradford & Bingley dated 14 July 2000) indicating that Mr Simpson was seeking investment advice and received entirely conventional advice about the tax advantages of putting investments in his wife’s name, arising from the difference in the tax rates applicable to them. This was a transaction before the sale of Excel to 4Eng, and long before Mr Simpson sought advice about the transfer of Sunset Lake to Mrs Simpson. For the reasons given above, and bearing in mind the observation of Simon Brown LJ at [40] in Hashmi quoted above, I conclude that this was not a transfer in relation to which Mr Simpson acted for a relevant purpose. In my view, his only object in making the transfer was to reduce the family’s overall tax liability. Mrs Simpson said that “The money always belonged to [Mr Simpson] and myself”, but it is clear on an objective approach to their intention, bearing in mind their joint objective to reduce the family’s tax liability, that their actual intention was that Mrs Simpson should own the account beneficially in full. Mr and Mrs Simpson were reasonably sophisticated in making their legal and financial arrangements, and there is no basis for concluding that the usual presumption that equitable ownership reflects the legal ownership of an asset does not apply in their case. Mrs Simpson’s general statement that the money always belonged to Mr Simpson and her is properly to be analysed as a broad statement of her intention to hold the money as a family asset, rather than as a strict description of the legal position. It does not amount to a contemporary or later declaration of trust by her in respect of the account in favour of herself and Mr Simpson in equal shares, and Mr Freedman did not contend that it did (see para. [53] above). In November 2005 this account was cancelled and the proceeds were paid into Mrs Simpson’s Bradford & Bingley account no. 032WJ251745C. This must have been a transaction on the instructions of Mrs Simpson, and does not represent a distinct transfer by Mr Simpson to her. The position, therefore, is that Mrs Simpson became the full beneficial owner of the first of these accounts in April 1999 and remained so in relation to both accounts thereafter, and that 4Eng’s claim under s. 423 in respect of them fails;(2) Also in about April 1999, Mr Simpson transferred a sum to set up the Bradford & Bingley account no. 032WD318744C in Mrs Simpson’s name, and for the same purpose as in (1) above (to minimise the family’s overall tax liability). For the same reasons as in (1), 4Eng’s claim under s. 423 in relation to the original payments into this account also fails. On about 19 August 2002 it is likely that a further payment of £150,000 was made into this account by Mr Simpson, via one of their joint accounts with HSBC, which was probably funded out of the proceeds of sale of Mr Simpson’s share in a factory at Theale which he owned with Mr Harper and from an Abbey National Bond which he owned with Mrs Simpson. This, after allowing for withdrawals from the account, probably explains the fact that the balance on this Bradford & Bingley account stood at £118,962 in June 2006. It seems that considerable sums were withdrawn from the account to pay for legal expenses of Mr Simpson in the criminal proceedings and to pay for legal expenses of Mrs Simpson in relation to the s. 423 claims against her. The further payment into the account was before the critical time of April/May 2003, and is explicable on the grounds of seeking to minimise the family’s overall tax liability. Accordingly, I find that 4Eng’s claim under s. 423 in respect of the further payment into this account also fails;(3) Mr Simpson transferred his share in a joint account no. 57573123 with the Portman Building Society to Mrs Simpson as a gift in about May 2004, again because he had been advised to do so for tax reasons by a financial adviser (by this stage, Mr Simpson was in receipt of a pension under his privately funded pension plan, and the income from that still took him into a higher tax bracket than his wife). The account had originally been set up as a joint account in October 2001, before April/May 2003, in a transaction which 4Eng cannot successfully impugn. The transfer of Mr Simpson’s half-share in the account, however, was made after the critical time in April/May 2003, when Mr Simpson had begun to take steps to transfer assets into his wife’s name to protect them from claims being asserted against him. In my view, although tax saving was one reason (and might have been a sufficient reason) for this latter transfer, by reason of the principle in Hashmi that did not exclude Mr Simpson from also having a relevant purpose (to protect his assets from his creditors) as a co-existing substantial purpose for the transfer. I think that he made this transfer in part because of his desire to protect his assets. I conclude that 4Eng’s claim in relation to this transfer succeeds. The original transfer of funds in October 2001 was £10,000, of which Mr Simpson owned half. The current value of the account (now with Nationwide Building Society after its amalgamation with Portman) reflects interest which has accrued on it. I order that half the sum in the account (reflecting the transfer of Mr Simpson’s half-share in 2004) should be transferred by Mrs Simpson to Mr Simpson, so that 4Eng may execute its judgment against it;(4) Mr Simpson and Mr Harper transferred further property (£36,849.42) for the benefit of Mrs Simpson over a period of time from January 1991 to fund a self-invested pension plan for her with HSBC plc in respect of her services as a part time employee for Excel over a number of years. These transfers appear to have been for a good reason, and occurred before the critical time of April/May 2003. Therefore, 4Eng has not established that the transfers in relation to this item were for a relevant purpose, and its claim in respect of them fails;(5) Mr and Mrs Simpson set up a joint account with Abbey National plc, no. H25767042, in about July 2001, using Mr Simpson’s share of the deposit received from 4Eng for Excel (about £270,000). The account was run as a jointly owned family account in line with the general and entirely legitimate arrangement between Mr and Mrs Simpson that they would share their assets. It was set up for a legitimate reason, before the critical time of April/May 2003, and in particular the point made at para. [24] above applies in relation to it and to transfers made into it. There is no evidence that Mr Simpson used this account to shield or hide assets from his creditors. Accordingly, 4Eng has not established that the transfers in relation to this item were for a relevant purpose, and its claim in respect of this account fails;(6) Mr and Mrs Simpson set up another joint account with Abbey National, no. X8545490, in the 1980s. It has a very small balance on it. Similar points apply here as in relation to (5) above, so 4Eng’s claim in relation to this account also fails;(7) Mr and Mrs Simpson set up a joint account with Bradford & Bingley, no. 32BB000095E, in the early 1990s. For the same reasons as in relation to (5) and (6) above, 4Eng’s claim in relation to this account fails;(8) Mr and Mrs Simpson set up a joint current account with HSBC, no. 91305980, in about 1999. For the most part it was operated simply as an ordinary joint family account, and for the same reasons as in relation to (5) et seq. above, 4Eng’s claim in relation to this account fails;(9) Mr and Mrs Simpson also set up a joint savings account with HSBC, no. 01308009, in about 1999. For the same reasons as in relation to (5) et seq. above, 4Eng’s claim in relation to this account fails;(10) Mr and Mrs Simpson set up a joint account with Portman Building Society, no. 53190823, in about 1999/2000 (it is now held with Nationwide Building Society). For the same reasons as in relation to (5) et seq. above, 4Eng’s claim in relation to this account fails;(11) Mr Simpson transferred funds (probably derived from the lump sum he received in respect of his HSBC pension) to set up an Invesco Perpetual ISA no. SIMX103253 in Mrs Simpson’s sole name in 2003. This was done on the basis of financial advice set out in a letter dated 20 March 2003 from a financial adviser to Mr and Mrs Simpson. The evidence shows that the transfer took place on 27 March 2003, before the critical time of April/May 2003. For the same reasons as in relation to (5) et seq. above, 4Eng’s claim in relation to this account fails;(12) Monies were taken from Mr and Mrs Simpson’s joint accounts to fund Legal & General Bond no. 205103620510000-99 in Mrs Simpson’s sole name in about 2000. This was before the critical time of April/May 2003. It is likely that this transaction was entered into on the basis of advice set out in the letter from a financial adviser dated 14 July 2000 for conventional family tax planning reasons. 4Eng has not established that the transfer was made for a relevant purpose, and its claim in relation to this asset fails;(13) Monies were also taken from those joint accounts to fund Norwich Union Bond VB67003006/001-035 in Mrs Simpson’s sole name in about 2000, again before the critical time of April/May 2003. It appears that this transaction also was entered into on the basis of advice set out in the letter from the financial adviser dated 14 July 2000 for conventional family tax planning reasons. So here also, 4Eng has not established that the transfer was made for a relevant purpose, and its claim in relation to this asset fails;(14) At the same time, and again on the basis of the letter of 14 July 2000, monies were taken from Mr and Mrs Simpson’s joint accounts to fund a Sun Alliance Bond (now Phoenix Bond no. 0305690797) in Mrs Simpson’s sole name. For the same reasons as in (12) and (13) above, 4Eng’s claim in relation to this asset fails.(15) Mrs Simpson’s account no. 57578762 with Portman Building Society was opened in 2002 with the proceeds of an investment bond which Mr Harper and Mr Simpson had purchased as life assurance for the benefit of their wives in the early 1980s (paid via one of Mr and Mrs Simpson’s joint accounts). Those proceeds were in substance Mrs Simpson’s own property, and in any event the transaction took place before the critical time of April/May 2003, so 4Eng has no good claim in relation to this account;(16) In May 2005 Mr Simpson gave Mrs Simpson a Jeep Cherokee car worth £11,475. This was after the critical time of April/May 2003, and on the principle in Hashmi I find that the gift was affected by a relevant purpose. 4Eng is entitled to the order it seeks for the car to be transferred to Mr Simpson, so that 4Eng may then execute its judgment against it;(17) It emerged from Mrs Simpson’s late evidence that in mid-2008 an insurance bond in the name of Mr Simpson matured and the proceeds were paid into an account with Halifax Building Society which was either in her sole name or a joint account. I do not have the details of this account, and so cannot make an order in respect of it. But my finding is that this transfer, made at such a late stage, was for a relevant purpose and that in principle 4Eng is entitled to an order for the funds standing in that account to be restored to Mr Simpson for it to be able to execute its judgment against them. Once the full details are known, 4Eng may apply back to me for an appropriate order.[75]There is a further asset which requires consideration: HSBC investment account no. SIMP0054 (0535971) in Mrs Simpson’s sole name. On about 13 May 2003 Mr Simpson arranged for a transfer of £150,000 from the joint HSBC current account to establish this HSBC investment account. That sum represented a sum of £150,000 paid into the joint HSBC current account by Mr Simpson on about 28 April 2003. These monies were part of the lump sum which Mr Simpson received from his pension scheme with HSBC. In my view, Mr Simpson arranged for this lump sum to be transferred to Mrs Simpson via the HSBC current account in order to protect it from claims which might be made against him, i.e. for a relevant reason. Therefore, 4Eng is entitled to an order in respect of the HSBC investment account. I consider the proper extent of that order below.[76]An order under s. 423 is intended to restore the position to what it would have been if the transaction had not been entered into (s. 423(3)). Here, it might be said that the relevant transaction was the transfer of £150,000 from the jointly owned HSBC current account, that Mrs Simpson should be regarded as owner of half that amount, and that therefore the restorative order under s. 423 and s. 425 in respect of this transfer ought to be limited to only £75,000 (and any proceeds from such sum in the investment account).[77]However, I do not think such an analysis would be appropriate. The lump sum from Mr Simpson’s pension was an extraordinary item so far as the family finances were concerned, which fell to be invested rather than be treated as just another contribution to the joint accounts run by Mr and Mrs Simpson to meet their living expenses. It was not treated by him as an ordinary payment into the joint current account in the usual course. The proximity in time between the payment into that account and the payment of the same sum out again indicates that he simply used the account as a convenient staging post while he sorted out an investment account in his wife’s sole name into which the lump sum could be paid. His overall intention was to arrange for his asset (that part of the lump sum payable to him represented by the £150,000) to be transferred to his wife. In light of that intention, the relevant “transaction” for the purposes of s. 423(3) was the transaction whereby he diverted an asset of his worth £150,000 into the name of his wife (and see, in support of that approach, Department for the Environment, Food and Rural Affairs v Feakins [2004] EWHC 2735 (Ch) at [45] per Hart J). I consider that the whole £150,000 paid into Mrs Simpson’s HSBC investment account was a transfer which falls to be reversed for the benefit of 4Eng.[78]I should mention that in considering what order should be made in this regard I also took into account that a possible alternative course available to Mr Simpson had he not transferred those monies into an investment fund in Mrs Simpson’s sole name might have been to transfer them into an investment fund in their joint names. It is quite possible that if he had not set up the fund in Mrs Simpson’s sole name, he would have done this instead, in line with his pattern of conduct in relation to various other assets (e.g. their joint bank accounts and family homes). On that basis, might it be said that only half of the transfer of £150,000 should be reversed by an order under s. 423 (representing Mr Simpson’s putative half share in those monies)?[79]I do not think that would be right. If Mr Simpson had proceeded in that way, the creation in April/May 2003 of a half share for Mrs Simpson in the putative joint investment fund, formed with £150,000 of Mr Simpson’s money, would have been a transfer for purposes which included a relevant purpose (by application of the principle in Hashmi – compare para. [74(3)] above), and hence would itself have been a reversible transaction. Therefore, on any view the whole transfer of the £150,000 should be brought into account when formulating an appropriate order.[80]A further major transfer was effected by Mr Simpson into the HSBC investment account in the same way. On about 10 November 2003 he paid £160,000 into the joint HSBC savings account. It is probable that this sum also derived from the lump sum paid to Mr Simpson in respect of his pension fund. On 14 November 2003 he arranged for £150,000 of that sum to be paid out of the joint savings account and into the HSBC investment account. The analysis in relation to this transaction is the same as in relation to the previous contribution of £150,000 discussed above. It is likely that if there were any other transfers into this account they were from Mr Simpson’s funds after the relevant time of April/May 2003 and would fall to be brought into account when formulating the order for the same reason.[81]The value of the HSBC investment account had risen to £507,732 on 16 November 2007 (presumably in line with rises in the stock market), but had then reduced to £334,713 by mid-August 2008. At the time of trial, according to Mrs Simpson’s witness statement, the value of the account was £212,904 (it was not altogether easy to square this figure with the account statements available to me, but it is a matter which the parties will easily be able to check with HSBC).[82]These reductions were due in part to withdrawals from the account to pay for Mr Simpson’s legal expenses in respect of his criminal trial and the civil proceedings against him, in part to meet legal expenses of Mrs Simpson in relation to the civil proceedings against her, and also probably in part to falls in the stock market. I find that all withdrawals were made with Mrs Simpson’s consent and on her instructions. On 15 May 2008 £158,706.46 was withdrawn from the investment account (with the consent of the SFO and the solicitors for 4Eng), to meet Mr Simpson’s legal expenses (principally in respect of the deceit and breach of warranty proceedings brought by 4Eng against him). In mid-July 2009, a further £144,204 was withdrawn (with permission of the court) to pay for Mr Simpson’s legal expenses in respect of preparation for the trial of the s. 423 claims against him and Mrs Simpson. Further, also in mid-July 2009, £50,000 was withdrawn from the account (with the consent of the solicitors for 4Eng) to pay for Mrs Simpson’s legal expenses in respect of the s. 423 claims against her.[83]Mr Freedman submitted that an order should be made against Mrs Simpson under s. 425(1)(d) to pay Mr Simpson money reflecting the full value of the investment account at its high point in November 2007, in addition to a simple order for payment to Mr Simpson of the sums currently standing in the account. This was on the basis that, as he submitted, 4Eng should not be prejudiced by the expenditure out of that fund on the legal fees of Mr and Mrs Simpson.[84]So far as concerns the expenditure on Mr Simpson’s legal expenses of the criminal proceedings and the deceit and breach of warranty claims against him, I do not accept this. The analysis is as follows. If the impugned creation of the investment fund in Mrs Simpson’s name had not occurred, Mr Simpson would still have invested the money in a similar fund but (avoiding the transfer of value to Mrs Simpson on the principle in Hashmi) one notionally in his own name. The freezing orders obtained against him by the SFO and 4Eng would have allowed him to expend his money on his own legal costs, thus reducing the investment fund in the same way as in fact occurred when it was in Mrs Simpson’s name. The broad object of orders under s. 423 is to restore the position to what it would have been if no impugned transaction had taken place. Here, the position in respect of Mr Simpson’s legal expenses would have been the same as in fact occurred: they would have been met out of the same investment fund. Accordingly, no order is justified against Mrs Simpson requiring her to use her own resources now to restore the value of the investment fund to what it would have been had it not been used to meet Mr Simpson’s legal expenses.[85]There is one qualification to this. In addition to his legal expenses in defending the criminal proceedings and the action for deceit and breach of warranty, Mr Simpson incurred legal expenses in relation to defending the s. 423 claim. That claim is in substance a claim not against him but against his wife (the owner of assets which 4Eng says should be taken from her), in relation to which he is a relevant witness (to give evidence about his purpose in effecting transfers to her) but in relation to which he did not obviously require to be separately represented. In effect, his legal expenses in relation to the s. 423 claim have been incurred to defend Mrs Simpson. The expenses were in fact paid by Mrs Simpson. I do not think that these would have been allowed as Mr Simpson’s own reasonable legal expenses under the freezing orders against him, had the fund from which they were paid been his and had there not been the overlap of preparation for the trial of the s. 423 claim between him and Mrs Simpson. Therefore, the analysis in para. [84] above does not apply. In my view, these legal expenses fall to be treated in the same way as Mrs Simpson’s own legal expenses of defending the s. 423 proceedings, which I address below.[86]So far as concerns expenditure on Mrs Simpson’s own legal expenses of defending the s. 423 proceedings, in the circumstances of this case I think the answer is given by consideration of two things. First, can Mrs Simpson avail herself of a change of position defence (see para. [14(1)] above)? On the evidence, she did not know that the transfer of funds to her was for a relevant purpose, so she did not act knowing that the investment account should be held for the benefit of 4Eng. She was entitled to seek to defend herself, by using the resources which were her property; there was evidence available which allowed a good arguable defence to be put forward; and she acted reasonably in expending funds to try to meet the claims against her. In the present context, I think this amounts to the requisite degree of good faith to justify reference to a change of position defence.[87]The question then is whether Mrs Simpson changed her position in reliance upon her ownership of the HSBC investment account such that it would be inequitable to require her to restore to 4Eng monies spent by her from that account on her legal expenses. This might be the case if, e.g., they were the only funds to which she could have recourse to meet her legal expenses and if she had spent more on legal representation than she would otherwise have done. However, on the findings I have made Mrs Simpson had other property and funds available to her which are her property derived by legitimate means (in some cases, e.g., from transfers from Mr Simpson which cannot be impugned). If she had not had the HSBC investment account available to her to use to meet her legal expenses, she would have used other funds available to her to meet the expenses she incurred. There is no evidence that, had she not owned the HSBC investment account, she would have spent any less on her legal representation than she in fact did. Accordingly, I conclude that she cannot establish a change of position defence and so, in principle, I consider that an order should be made under s. 425(1)(d) against her in favour of 4Eng in respect of sums taken from the HSBC investment account to pay her legal expenses. The practical effect of that will be that she is treated as having to meet her legal expenses out of her own resources, rather than out of a fund which should be available for the benefit of 4Eng.[88]However, the amount of the payment to be ordered is to be qualified by reference to the second consideration. If Mrs Simpson had not paid her legal expenses out of the HSBC investment account, but out of other funds of her own to which 4Eng has no good claim, the HSBC investment account would not have been reduced by such payments. However, the value of the (notionally un-depleted) fund - whether in Mrs Simpson’s hands or notionally in the hands of Mr Simpson, had it been set up in his name rather than hers - would still have been exposed to market fluctuations, which have diminished the value of the account over time (albeit its value may now be climbing again, in line with the general market). It would exceed the general object of an order as set out in s. 423(3) (to restore the position to what it would have been if the impugned transfer from Mr Simpson to Mrs Simpson had not taken place) and would be unfair to require Mrs Simpson to make a payment in respect of her expenditure on her own legal expenses which had the practical effect of holding 4Eng harmless in relation to that element of the (notionally un-depleted) fund against the fall in value of the HSBC investment account in line with the general market.[89]Therefore, in relation to Mrs Simpson’s expenditure on her own legal expenses (and those of Mr Simpson in relation to the s. 423 claim) out of the HSBC investment account, the appropriate order under s. 425(1)(d) is an order that Mrs Simpson pay Mr Simpson a sum equal to a proportion of that expenditure to reflect the rate of fall in the value of the HSBC investment account between the date the expenditure was paid for by removing funds from that account and the date of the order. Hence, if, say, the value of £1 in the account as at the date of the expenditure has reduced to 80 pence as at the date of the order (i.e. a decline of 20%), Mrs Simpson should be ordered to pay Mr Simpson (for the benefit of 4Eng) a sum equal to 80% of the amount she spent from the investment account on her legal expenses. (It does not necessarily follow that if the value of the fund had risen, it would be fair to order her to pay 4Eng more than she actually spent).[90]This is a calculation which the parties should readily be able to agree. If there is any difficulty in doing so, they will have liberty to restore the matter before me to resolve it.[91]Mrs Simpson is also ordered to transfer the whole sum currently standing in the HSBC investment account to Mr Simpson.

A further defence?

[92]Mr Burles also submitted that before making any order in line with the principles and conclusions set out above, the court should seek to take into account Mrs Simpson’s own needs, financial requirements and quality of life, as an additional defence. Against this, Mr Freedman submitted that the relevant legal principles to be applied should not depend upon such a potentially wide-ranging and unstructured inquiry. As he pointed out, if these aspects of Mrs Simpson’s position were to be taken into account, then so also should such aspects of Mr Shepherd’s and Mr Tapping’s lives be brought into the balance. But this all went well beyond what the court is required to focus upon in making property adjustments and orders under ss. 423-425 and would potentially add significantly to the costs and length of s. 423 proceedings.[93]I agree with Mr Freedman. There is no additional defence of the general kind proposed by Mr Burles. The inquiry under ss. 423-425 focuses upon claims to property, with a comparatively narrow scope for limited, recognised principles of justice (such as the change of defence position) to be taken into account. Parliament has not stipulated any legal standard by reference to which any such wider balancing exercise as is proposed by Mr Burles could be undertaken, and I think it clear that it did not intend that the application of these provisions should involve any such exercise. Accordingly, I conclude that no wider inquiry of the kind proposed by Mr Burles is necessary or appropriate.

Conclusion

[94]In the course of this judgment I have dealt with the issues of principle that divide the parties. They should now seek to agree figures and the terms of the order which falls to be made. If there remains any dispute, they can refer the matter back to me for resolution.

Cited in 33 later judgments

and 24 more of the most senior